2025.05.0514:15:00UTC+00Dollar Rallies Amidst Mixed Economic Data, Trade Deal Hopes

The U.S. Dollar extended gains during the week ended May 2 in the backdrop of mixed economic data from the U.S. The dollar's course during the week was significantly dictated by expectations of trade deals between the U.S. and its trade partners. Expectations of an easing in the trade tensions between China and the U.S. particularly swayed sentiment.

The Dollar Index, a measure of the Dollar's strength against a basket of currencies comprising the euro, the British pound, the Japanese yen, the Canadian dollar, the Swedish krona and the Swiss franc closed trading on May 2 at 100.03 versus 99.47 on April 25. at 99.47, implying weekly gains of 0.56 percent. The week's trading range was much wider, oscillating between the low of 98.90 recorded on Monday and the high of 100.38 recorded on Thursday.

Close on the heels of job openings in the U.S. falling to a six-month low of 7.19 million in March, data released on Wednesday showed private businesses in the U.S. adding 62 thousand workers to their payrolls in April, which was the softest increase since July of last year.

Indications of a stress in the labor market was followed by data showing contraction in the U.S. economy. Data released by the U.S. Bureau of Economic Analysis on Thursday showed the American economy contracting at an annualized rate of 0.3 percent in the first quarter of 2025. The first decline since the first quarter of 2022 was also a sharp reversal from the 2.4-percent growth recorded in the previous quarter.

Updates to PCE-based inflation readings, considered the Fed's preferred inflation gauge were also provided on Thursday. The year-on-year PCE Price Index which was expected to decline to 2.2 percent in March recorded a slightly higher level of 2.3 percent. The core component thereof declined to 2.6 percent along expected lines. The month-on-month PCE Price index remained flat as expected. The core component thereof which was expected to decline to 0.1 percent also recorded a flat reading.

Data released by the U.S. Bureau of Labor Statistics on Friday morning showed an addition of 177 thousand to non-farm payrolls in April versus the downwardly revised 185 thousand in March. Markets had factored in a far lower level of 130 thousand. The unemployment rate remained steady at 4.2 percent as expected.

The Euro slipped 0.61 percent against the Dollar despite data that showed higher-than-expected levels of inflation as well as GDP. During the week ended May 2, the EUR/USD pair declined to 1.1296, from 1.1365 a week earlier. The pair ranged between $1.1425 and $1.1266 during the week.

The sterling slipped 0.33 percent against the greenback during the week ended May 2 even as markets hoped for an easing in the global trade related tensions. The GBP/USD pair declined to 1.3272 on May 2 from 1.3316 a week earlier. The sterling's weekly trading range was between $1.3446 recorded on Monday as well as Tuesday and $1.3259 recorded on Thursday.

The Australian Dollar rallied 0.75 percent against the greenback during the week ended May 2. From the level of 0.6396 recorded on April 25, the AUD/USD pair rallied to 0.6444 in a week's time amidst data that showed steady levels of annual inflation. The pair which had dropped to touch the week's low of 0.6356 on Wednesday climbed to a high of 0.6471 on Friday.

The USD/JPY pair dropped 0.87 percent during the week ended May 2 as it closed at 144.95 versus 143.70 a week earlier. A widely expected status quo on rates and a forward guidance that was more dovish than anticipated by Bank of Japan contributed to the yen's weakness. The pair ranged between the low of 141.97 recorded on Tuesday and the high of 145.93 recorded on Friday.

The Fed's interest rate decision is due on Wednesday. Though rate cut expectations have ebbed following the solid jobs data, the six-currency Dollar Index has weakened to 99.52 from the level of 100.03 at close on Friday.

The GBP/USD pair has rallied to 1.3314 amidst anxiety ahead of the Bank of England's interest rate decision due on Thursday. The EUR/USD pair has in the meanwhile increased to 1.1351. The AUD/USD pair has jumped to 0.6479 whereas the USD/JPY pair has plunged to 143.78.